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Latvia Is Endorsed to Adopt the Euro

June 5, 2013 by Leave a Comment

FRANKFURT — The small Baltic nation of Latvia received official endorsement for membership in the euro currency union Wednesday, in a move that European leaders clearly hoped would demonstrate the endurance of the euro zone despite its dismal economic performance and damaged reputation.

“Latvia’s desire to adopt the euro is a sign of confidence in our common currency and further evidence that those who predicted the disintegration of the euro area were wrong,” Olli Rehn, the European Union’s commissioner for economic and monetary affairs, said in a statement.

Both the European Commission, the European Union’s main policy-making body, and the European Central Bank said that Latvia had met the requirements for membership, which include limits on inflation and government debt. Latvia also had to demonstrate that its laws on issues like central bank independence are in line with European Union standards.

Latvia’s application still requires review by the European Parliament and endorsement by European Union political leaders, a process that is likely to result in formal approval in July.

Latvia would join on Jan. 1, becoming the 18th European Union country to adopt the euro.

The country, with 2.2. million people and economic output last year worth about 20 billion euros, is often held up as a model for advocates of austerity because the country responded to a severe banking crisis in 2008 by slashing government spending.

Economic output plunged, unemployment soared and wages fell, but the Latvian economy gradually recovered. The country’s economy grew 1.2 percent in the first quarter of 2013 compared with the previous quarter, second only to neighboring Lithuania among European Union countries.

“Latvia’s experience shows that a country can successfully overcome macroeconomic imbalances, however severe, and emerge stronger,” Mr. Rehn said.

However, opinion polls indicate that most Latvians are reluctant to join the euro, even though they have a powerful political incentive to do so. Like Estonia, another Baltic nation, which was the most recent country to join the euro in 2011, Latvia is anxious to tie itself to Europe and distance itself from its former Russian masters.

The Latvian government did not hold a voter referendum on euro membership. In many ways, the country is already a de facto member. The country has kept its currency, the lat, closely tied to the euro. And Latvian bank loans are commonly denominated in euros.

In its report, the European Commission said it had concluded that Latvia “has achieved a high degree of sustainable economic convergence with the euro area.”

The European Central Bank was also generally positive about Latvia, but expressed some concerns about the country’s readiness.

About half the deposits in Latvian banks come from outside the country, primarily Russia. That raises the risk of a sudden exodus of money in the event of a crisis. Earlier this year, Cyprus, another tiny euro zone member, was forced to limit withdrawals to prevent a bank run by Russian depositors.

But Latvia is considered less vulnerable to a Russian deposit flight than Cyprus because most of the money is linked to genuine business ties. Cyprus was regarded as a place where Russians parked their money to avoid taxes or because of fears that Russian authorities might one day seize assets.

The European Central Bank also expressed some concern whether Latvia could continue to meet the inflation targets required of euro members. While inflation has been well below 2 percent lately, Latvia has experienced huge swings in prices during the last decade, the central bank said, ranging from deflation to annual inflation of more than 15 percent.

The governor of the Latvian central bank will automatically join the European Central Bank’s governing council and have a vote in decisions on interest rates and other monetary policy issues. It is unclear who that person will be, since the term of the current governor, Ilmars Rimsevics, expires at the end of this year.

Historically, though, Latvia has stuck to the kind of conservative policies favored by Germany, Finland and other northern European countries. Government debt last year equaled about 41 percent of gross domestic product, well within limits set by treaty and much lower than Western European countries like France or Italy.

Still, recent experience with countries like Greece and Ireland has shown that nations can have trouble maintaining fiscal and economic discipline after they have joined the euro club.

“The temporary fulfillment of the numerical convergence criteria is, by itself, not a guarantee of smooth membership in the euro area,” the European Central Bank said in its report.

James Kanter reported from Brussels.

Article source: http://www.nytimes.com/2013/06/06/business/global/latvia-is-endorsed-to-adopt-the-euro.html?partner=rss&emc=rss

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European Leaders Huddle on Youth Unemployment

May 28, 2013 by Leave a Comment

PARIS — President François Hollande of France called Tuesday for “urgent action” to tackle alarmingly high rates of youth unemployment across the European Union, saying that mounting disillusionment among the “post-crisis generation” threatened the very future of the European project.

“We need to act quickly,” Mr. Hollande told a gathering of government officials, business leaders and students in Paris. “In this battle, time is the decisive factor.”

Mr. Hollande spoke ahead of a series of meetings between French and German officials this week in preparation for a summit meeting of European leaders at the end of June, where youth unemployment is expected to top the agenda. The subject is also expected to figure prominently at a meeting here Thursday between Mr. Hollande and the German chancellor, Angela Merkel.

Nearly six million people under the age of 25 are unemployed across the European Union — nearly one quarter of the total, according to Eurostat, the Union’s statistical office. Youth jobless rates are now roughly twice the national average in many of the Union’s 27 member states, with the figures reaching as high as 60 percent in countries like Greece and Spain, which have been hard hit by austerity-driven cuts to social services and other benefits.

Economists say the extraordinarily high rates are in part a result of the general economic slump across the region, but are also a consequence of inflexible labor market rules that make entry into the work force particularly difficult for young people.

In recent weeks, German officials have spearheaded a series of bilateral agreements with countries like Spain and Portugal aimed at helping more young people from those countries enter the work force or to receive vocational training. Discussions about a similar agreement with France are continuing, people with knowledge of the talks said.

Those agreements, while still short on details, are being seen as part of a broader blueprint for a pan-European plan to create jobs and apprenticeships for young people across the Union.

Mr. Hollande said Tuesday that the plan would rest on three pillars: easing the access to credit for small and midsize companies; developing new job-training and apprenticeship programs; and increasing the geographic mobility of young people by offering money for language training and moving costs.

Initial financing for the plan would come from a pool of roughly €6 billion, or $7.7 billion, that has already been earmarked for this purpose from the European Investment Bank.

The European youth jobs initiative is expected to be ready in time for a gathering of the Union’s ministers July 3 in Berlin.

Mr. Hollande’s call to action was echoed by other European officials in attendance at the conference, which was held before a packed hall of university students from France’s prestigious Institut d’Études Politiques de Paris, or Sciences Po.

“We have to rescue an entire generation of young people who are scared,” said Enrico Giovannini, Italy’s new labor minister. “We have the best-educated generation and we are putting them on hold. This is not acceptable.”

Joblessness among those aged 15 to 24 in Italy is above 38 percent, according to Eurostat, on par with the rate in Portugal, which has also adopted wrenching changes. Youth unemployment is much lower in Germany and Austria, below 8 percent in both cases, a reflection both of their stronger economies as well as their centuries-old apprenticeship systems, which offer paid vocational training to students while they are still in high school.

Ursula von der Leyen, Germany’s labor minister, emphasized the need to bring to bear the resources of the European Investment Bank, based in Luxembourg, to encourage companies to invest and create jobs.

“Many small and mid-sized companies, which are the backbone of our economies, are ready to deliver, but they need capital,” Ms. von der Leyen said, noting that small firms still faced “exorbitant” interest rates from private-sector banks that remain reluctant to lend. “We want to break this vicious circle,” she said.

Werner Heyer, head of the European Investment Bank, said the deepening youth unemployment crisis, alongside obstacles to cross-border lending within the euro zone, represented the region’s two “megaproblems.” But he cautioned that politicians would be mistaken if they believed that the European bank’s resources alone would be enough to solve the unemployment problem.

“Such expectations of the bank are beyond the horizon,” Mr. Heyer said. “There is no quick fix; there is no grand plan.”

Article source: http://www.nytimes.com/2013/05/29/business/global/european-leaders-huddle-on-youth-unemployment.html?partner=rss&emc=rss

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Economic Scene: Mexico’s 1980s Austerity Experience Holds Lesson for Europe

April 9, 2013 by Leave a Comment

His approach to economics was unorthodox but creative. He tried to raise oil prices by sheer force of will — firing the director of the state oil company Pemex for having the temerity to reduce the price of Mexican crude as oil plummeted on international markets. He froze dollar accounts in local banks to try to stem capital flight.

But the canine defense didn’t work. In 1982, interest on the country’s foreign debt swallowed almost two-thirds of its export revenue. In February, the Mexican currency started plummeting. In August, Jesús Silva Herzog, Mexico’s finance minister, flew to Washington to tell Paul Volcker at the Federal Reserve and Donald Regan at the Treasury Department that Mexico could not make its coming payments to American and other foreign banks.

Tweak a few of the details and Mexico in the 1980s looks a lot like most Southern European countries today. In Mexico’s case, runaway government spending in the 1970s, fueled by high oil prices and greased by foreign debt, threatened to bankrupt the country after the Fed sharply raised interest rates to curb rampant inflation in the United States, increasing Mexico’s interest payments even as oil prices crashed to earth.

Similarly, money poured into Spain and Greece when investors persuaded themselves that the bonds of all members of the euro zone should be as safe as Germany’s, the region’s most creditworthy country. In Greece, this allowed a government spending binge. In Spain it ignited a housing bubble. Both countries were left with an unbearable burden when the world economy hit a wall, creditors took flight and the money stopped.

European decision-making during the crisis of the last few years also shares some of the erratic nature of Mexican policy under President López Portillo. Cyprus was somehow allowed to threaten the euro area’s banking system. European leaders then “solved” the problem by imposing capital controls that — like those tried by Mexico — are unlikely to work and will undoubtedly provide new headaches down the road.

But the most relevant parallel is one that European leaders refuse to see. If there is one overwhelming lesson from the debt crisis that struck Mexico and other Latin American countries so hard three decades ago, it is that countries that cannot grow will not pay. It is up to creditors, too, to allow them to grow. It took Mexico and its lenders seven years to figure that out. The European crisis is in its fifth year. You would think they might have learned something by now, but no.

Mexicans remember what happened after Mr. Silva Herzog’s flight to Washington as the “lost decade.” Miguel de la Madrid, who took over as president the following December, promised deep budget cuts in exchange for bridge loans and debt rescheduling. That didn’t work, so Mexico cut a new deal, getting new loans from commercial banks, the United States and the International Monetary Fund, in exchange for cutting government payrolls and subsidies, selling state-run companies and opening the country to foreign trade.

I started college a little before Mr. Silva Herzog’s trip. In the five-plus years it took me to get a degree (Mexican degrees take longer) the Mexican economy contracted about 2 percent. By the time I got my graduate degree two years later, gross domestic product per person was 8 percent less than it had been in 1982.

Yet despite the enforced austerity, Mexico’s foreign debt in 1988 still amounted to 56.5 percent of Mexico’s economic output, more than it had six years before.

This must sound familiar to Europe’s unemployed. If anything it’s far worse there. The Greek economy has shrunk more than a fifth over the last five years. Government debt amounts to about 170 percent of the economy; it was 100 percent when the crisis started. The economies of Ireland, Portugal, Spain and Italy are smaller, too, than they were five years ago. Their debt burden is heavier. And still, European leaders insist that more of the same must be the solution.

E-mail: eporter@nytimes.com;

Twitter: @portereduardo

Article source: http://www.nytimes.com/2013/04/10/business/mexicos-1980s-austerity-experience-holds-lesson-for-europe.html?partner=rss&emc=rss

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News Analysis: Cyprus Bailout Shows Strictness but Signs of Disarray

March 26, 2013 by Leave a Comment

First, there will be no more bailouts without bail-ins, meaning investors and even some depositors in banks that get in trouble may have to pay at least part of the price of rescuing them. European leaders recognize that their voters will no longer tolerate having to pay to save other countries’ irresponsible banks and their clients.

Second, there is a strong message that if the euro zone is going to work, with a banking union that has credibility, there will be no more “casino economies,” little islands like Cyprus with banking sectors many times larger than their gross domestic product, that do not follow the rules and make everyone else vulnerable.

The package for Cyprus marks a victory, of sorts, for Germany and other hard-liners inside the euro zone that are determined to signal that banks and countries will be rescued only when they do penance for their past mismanagement, as determined by their rescuers. Supporters say this will preserve public support for the euro and encourage greater prudence down the road.

Critics, however, say the Cyprus bailout was so haphazardly handled that it underscored the chaotic nature of European decision making more than it sent an unmistakable message about a new approach to bailouts.

Many economists also say euro zone countries may have done themselves further harm by threatening to confiscate part of the savings of depositors in Cypriot banks. If large investors and even ordinary savers worry about a seizure of their assets whenever a bank gets in trouble, the private sector may grow more reluctant to steer funds toward troubled financial institutions, putting more pressure on the European Central Bank to pump in rescue funds.

Some researchers have also forecast that the Cyprus crisis will contribute to financial fears around Europe, which could end up costing Europeans far more in lost growth than they gain in savings from reducing the cost of bailing out Cypriot banks.

On Monday, after Reuters quoted Jeroen Dijsselbloem, the new head of the Eurogroup of finance ministers, as saying the Cyprus bailout could be a new template for resolving regional banking problems, stock markets in Europe and around the world dropped and the value of the euro dipped as well, giving up early gains. That appeared to reflect investor pessimism that requiring savers to bail out troubled banks would prove a good model for euro zone rescues.

The Cyprus crisis elicited a strong and uncompromising response partly for geostrategic reasons, specifically because the role of Russian money, laundered and otherwise, is becoming a major consideration. European Union officials, for example, speak privately of their deep suspicion that European position papers about negotiations with Russia were regularly leaked to Moscow from Cyprus, and European countries that are NATO members are unhappy with the laxity with which Cyprus deals with Russian spying and the way it holds up European cooperation with the alliance over Turkey.

Germany and other countries of northern Europe, either former Soviet colonies like the Baltic nations or sometimes anxious neighbors, like Finland, were not going to try to sell to their voters the idea of bailing out Russian oligarchs — and Russian officials with secret bank accounts.

Toomas Hendrik Ilves, the president of Estonia, said he and his European colleagues were shocked to hear Cypriot officials say, “Brussels is far away, and Russia is a good friend.”

Cyprus also lost sympathy by trying to protect depositors with more than 100,000 euros from too high a contribution — considered an effort to protect Russian money, for the most part — while proposing to tax depositors with accounts under that figure, which are supposed to be insured. “It meant only that they were in bed with the Russians,” said Mr. Ilves, who is blunter than most officials. “And German voters, let alone Estonians, were not going to accept bailing out Russian oligarchs.”

Politically, he said, “you can talk about solidarity with the poor Greeks, and that’s hard enough, but solidarity with thugs and money launderers is a different matter.”

However tiny, Cyprus also appeared to call into question, once again, the sustainability of the euro as a common currency for so many disparate economies.

Steven Erlanger reported from Paris, and James Kanter from Brussels.

Article source: http://www.nytimes.com/2013/03/26/world/europe/cyprus-bailout-shows-strictness-but-signs-of-disarray.html?partner=rss&emc=rss

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European Leaders, Committed to Budget Cuts, Meet in Brussels

March 15, 2013 by Leave a Comment

BRUSSELS — Jeered by angry protesters demanding an end to austerity and shaken by a resounding rejection of their economic strategy from Italian voters, European leaders gathered for an economic summit meeting Thursday amid few signs that the bloc’s policies were healing the twin blights of rising unemployment and recession.

Instead of bowing to a rising anti-austerity tide, however, leaders seemed determined to stay the course, insisting that only budget cuts and other measures to restore financial stability could return the continent to economic growth and create jobs.

Speaking as thousands of protesters gathered just out of earshot in a nearby Brussels park, Herman Van Rompuy, the president of the European Council, the body that organizes the leaders’ summit meetings, emphasized “green shoots” of recovery and said growth was returning, albeit slowly.

Officials of the European Union have repeatedly predicted a return to growth, only to be disappointed by data showing rising unemployment and continuing recession in the euro area.

The economy of the 17-member euro zone is expected to shrink for a second consecutive year in 2013, and growth for the whole of the 27-nation European Union is forecast to be about 0.1 percent. Unemployment in Spain and Greece, the hardest-hit countries, has soared above 25 percent.

Mr. Van Rompuy acknowledged “social distress” and said the success of anti-austerity and anti-establishment parties in the recent Italian elections was something that the leaders needed to consider. But he insisted that the departing Italian prime minister, Mario Monti, who was roundly defeated in the elections last month, had done “an excellent job” and that Italy and the European Union should “stick to the same general direction of the last 12 months.”

Italy is effectively without a functioning government after the Five Star Movement, led by Beppe Grillo, a comedian turned activist, made stunning gains in both houses of Parliament in the elections. Five Star has rejected an appeal by the Democratic Party to work together to lead the country. Without an alliance, the Italian government could limp along for as long as a year, political analysts say, before a likely collapse would force new elections.

The Brussels meeting is meant to focus on the tougher budgetary oversight agreed upon over the last two years to combat the kinds of extreme debt and deficit problems in many countries that nearly brought down the euro currency union. Leaders were also expected to endorse a strategy that should give France, Spain and Portugal more time to meet their deficit-reduction goals, on condition that they stick to a path of cutting debt.

Protesters, even if they were aware of such concessions, were clearly unconvinced.

“All they do is cut, but we need jobs,” said Michael Mercier, a worker at a Belgian prison for juveniles who took part in an anti-austerity rally organized by trade union groups in Parc du Cinquantenaire, near the site of the summit meeting and the headquarters of the European Commission, the bloc’s executive arm.

“This is all the fault of the E.U.,” said Mr. Mercier, who added that the way the bloc was run mixed “too many different things in the same big pot, and this causes problems for everyone.”

One group of demonstrators managed to enter an annex of the European Union’s principal economic policy-making arm, the European Commission’s Directorate General for Economic and Financial Affairs, and staged a protest meeting in the cafeteria.

“We occupied their building to denounce the misery they are imposing on millions of Europeans,” said Michel Vanderopoulos, a spokesman for the group, which organized the protest, called “For a European Spring.” He said those who took part came from Belgium, Germany, Italy and Denmark.

The annex houses some of the officials who form part of the “troika” of international lenders detested by many people in countries like Greece and Portugal for its role in demanding painful belt-tightening in exchange for bailouts.

A spokesman for the commission said the protest lasted about 15 minutes and did not involve any violent confrontations. “The Belgian police arrived on scene, and the protesters left of their own accord,” the spokesman said.

At the meeting, the increasingly acrimonious dispute over austerity pitted those who favor budget discipline — the European authorities and leaders of countries like Germany and Finland — against countries like France and Spain and groups like trade unions, which favor more government spending to promote growth.

Article source: http://www.nytimes.com/2013/03/15/business/global/european-leaders-stick-to-austerity-course.html?partner=rss&emc=rss

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E.U. Leader Suggests Europe Will Not Change to Satisfy Critics

February 28, 2013 by Leave a Comment

BRUSSELS — The man who represents the 27 leaders of the European Union warned Thursday of widespread opposition to steps that may be necessary to keep Britain as a member of the bloc.

Herman Van Rompuy, the president of the European Council, said he saw “no impending need to open the E.U. treaties” to address the complaints of countries like Britain that are outside the euro zone and which object to “federal Euroland” rules governing the Union.

“Nor do I feel much appetite for it around the leaders’ table,” Mr. Van Rompuy said, according to the text of a speech he delivered Thursday evening in London at the Policy Network, a center-left research organization.

An aide to Mr. Van Rompuy said the comments were meant to underline that there was no immediate need to change E.U. treaties to ensure the stability of the euro, and that the comments were not referring to any demands for treaty change that Britain may seek in the future.

Still, Mr. Van Rompuy’s remarks appeared to be a pointed warning to Prime Minister David Cameron, who in January promised British voters a referendum within the next five years on whether to stay in the Union on revised membership terms, or to leave.

Mr. Cameron’s stance is widely regarded as a bet that his country is big and important enough to win concessions from the bloc, including a change in the E.U. treaty if necessary. But a number of European leaders, as well as critics in Britain, have also warned that Mr. Cameron could lose that gamble and end up overseeing the country’s voluntary exclusion from the Union.

Mr. Van Rompuy also faulted the British approach as overly confrontational in a Union that has a long tradition of consensual decision-making.

“How can you possibly convince a room full of people when you keep your hand on the door handle?” said Mr. Van Rompuy, without naming Mr. Cameron, according to the advance copy of his speech.

“How to encourage a friend to change, if your eyes are searching for your coat?” he added.

In the speech, Mr. Van Rompuy said that “leaving the club altogether, as a few advocate, is legally possible” but that such a move “would be legally and politically a most complicated and unpractical affair.”

Mr. Van Rompuy’s remarks got underway shortly after Mario Monti, the outgoing Italian prime minister, warned during a speech in Belgium of renewed dangers to the Union on its southern fringe.

Mr. Monti was roundly defeated during the weekend in elections that left no party with a majority in the new Parliament in Rome. The ballot also saw the emergence of the anti-establishment Five Star Movement, founded just three years ago by the comedian Beppe Grillo, and the resurgence of Silvio Berlusconi, who was forced from office in November 2011 amid a collapse in confidence in his ability to run the country.

In his speech, Mr. Monti, who described himself as a fervent supporter of budgetary discipline, said that one of the key problems the Union faced was that reforms associated with such policies took a long time to bear fruit.

“If the gains from virtue are not seen, the insistence on virtue may be short-lived,” he told an audience of antitrust lawyers at a conference in Brussels, where he formerly served as the European Union’s commissioner for competition policy.

Mr. Monti said that “strategy at the E.U. level” was in danger of being undermined by “the most simplistic, some would say populistic” trends, adding the caveat that he was not referring to the elections in Italy.

Article source: http://www.nytimes.com/2013/03/01/business/global/eu-leader-suggests-europe-will-not-change-to-satisfy-critics.html?partner=rss&emc=rss

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News Analysis: European Union Leaders Agree to Slimmer Budget

February 8, 2013 by Leave a Comment

BRUSSELS — As European Union leaders began their 14th hour of budget negotiations after a sleepless night, Valdis Dombrovskis, the prime minister of Latvia, took the floor early Friday to address what, for his Baltic nation of around two million people, is a vital question: Why should a Latvian cow deserve less money than a French, Dutch or even Romanian one?

In a system that requires unanimous approval of budget decisions, what Latvia wants for its dairy farmers — or Estonia for its railways, Hungary for its poorer regions or Spain for its fishermen — is no small matter. It is this cacophony of local concerns that explains why, despite Germany’s outsize role in decision-making, the European Union has such trouble reaching an agreement on something as basic as a budget.

And if simply agreeing to a budget is so daunting to member countries, it raises serious questions about the limits of the political and economic integration that have long been the master plan for champions of European unity.

After a failed attempt to set spending targets at a summit meeting in November and in a 24-hour marathon of talks this week, European leaders finally agreed late Friday to a common budget for the next seven years. The new budget, slightly smaller than its predecessor — the first decrease in the European Union’s history — reflects the climate of austerity across a Continent still struggling to emerge from a crippling debt crisis.

The colossal effort that was required to agree to a sum of about 960 billion euros ($1.3 trillion), a mere 1 percent of the bloc’s gross domestic product, exposed once again the stubborn attachment to national priorities that has made reaching agreements on how to save the euro so painful in recent years.

“We need to agree, and to agree we need to take into account all countries,” Mr. Dombrovskis said in an interview. The Latvian leader, who rushed to his hotel for a shave, shower and change of shirt in the middle of the night, described the ordeal as “not a pleasant experience,” but said, “It only happens every seven years, so we can tolerate it.”

But toleration is not the same thing as cooperation.

“What we’re seeing is that European integration is very important to European leaders as long as it doesn’t imply that someone has to be paying for someone else,” said Daniel Gros, director of the Center for European Policy Studies, a research organization in Brussels. “Sharing a European budget is not going to be the essence of the E.U., but crafting the rule books for open borders and stable banking systems will be.”

The spectacle of European leaders haggling through the night over amounts of money representing rounding errors in their national accounts demonstrated vividly their reluctance to make collective policies that erode their nations’ sovereignty.

“The budget negotiations are the most visible sign of member states winning and losing from the European Union,” said Hugo Brady, a senior research fellow at the Center for European Reform, a research organization. “The result is a totally parochial budget that is poorly adapted to rapidly changing times.”

Before it becomes law, the deal faces yet another hurdle in the European Parliament, which has the power to veto the budget.

Some of the most influential figures in Parliament have already signaled that they are prepared to reject a budget that would spend less on Europe in the years ahead.

Martin Schulz, the president of Parliament, said this week that he would not approve a budget that widened the gap between the cash governments pay up front and the somewhat higher amounts, known as commitments, that make up the overall budget.

Britain, Sweden and the Netherlands were among the Northern European nations that fought hard to reduce agricultural subsidies and increase spending on research and development to bolster the bloc’s global competitiveness.

Despite those efforts, farm spending remained the largest single portion of the budget, accounting for about 38 percent of the total — although that was down from about 42 percent in the previous seven-year budget period.

Galileo, a grossly overbudget and still unfinished satellite navigation project that aims to free Europe from its dependence on the United States’ global positioning system, escaped the cuts and is to receive 6.3 billion euros from 2014 to 2020.

This article has been revised to reflect the following correction:

Correction: February 8, 2013

An earlier version of this article misspelled, on one reference, the last name of the Latvian prime minister. It is Dombrovskis, not Domobrovskis.

Article source: http://www.nytimes.com/2013/02/09/business/global/european-union-budget-talks.html?partner=rss&emc=rss

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Cameron to Outline a Recast European Role for Britain

January 16, 2013 by Leave a Comment

Weighted down by centuries of entrenched wariness in this island nation toward the Continent — and the knowledge that a gallery of his predecessors as Conservative prime ministers saw their tenures blighted by divisions within the party over the issue — Mr. Cameron is heading for Amsterdam on Friday to set out his vision of a sharply whittled-down role for Britain in the affairs of 21st-century Europe.

The speech in the Netherlands, carefully chosen as a country with a strong historical friendship with Britain, is a watershed moment for Mr. Cameron, and for Britain. It could be a deeply jarring occasion, as well, for other European nations, which have grown increasingly impatient, angry even, with Britain’s policy during the crisis in the euro zone. Some European officials have described as blackmail its use of the crisis — one that Britain, with the pound, has largely escaped — to demand a new, “pick-and-mix” status for itself within the 27-nation European Union.

After months of delay, Mr. Cameron is expected to brush aside the warnings of the Obama administration and European leaders and call for a referendum on whether Britain should remain squarely in Europe or negotiate a more arm’s-length relationship, most likely before the next Parliament’s mandate expires in 2018. In a clamorous House of Commons on Wednesday, the prime minister set out his thinking.

“Millions of people in this country, myself included, want Britain to stay in the European Union,” he said. “But they believe that there are chances to negotiate a better relationship. Throughout Europe, countries are looking at forthcoming treaty change, and asking, ‘What can I do to maximize my national interest?’ That is what the Germans will do. That is what the Spanish will do. That is what the British should do.”

For months, Mr. Cameron has been holding off on a promise to explain just what he wants from Europe. As a reformist Conservative pressing ahead with, among other things, a plan to legalize gay marriage, he has scant common ground with the “little Englanders” in his party, the core of about 100 members who make up a third of its representation in Parliament.

But Mr. Cameron can see votes, too, in the strong anti-Europe currents that run wherever people in Britain gather.

In pubs and bars, on radio and in Parliament itself, talk of the European Union tends to center on the bloc’s real — and, in some cases, apocryphal — abuses: its highhanded, bloated bureaucracy, with nearly 1,000 featherbedded officials earning more than Mr. Cameron’s $230,000 salary as prime minister; its endless proliferation of rules on everything from the length of dog leashes to the shape of carrots; the recent claim by a former high-ranking Cameron aide that government ministers spend 40 percent of their time dealing with the mass of pettifogging European “directives,” many of them widely ignored elsewhere in Europe.

Not only has Mr. Cameron been hemmed in by deep divisions over Europe within the Conservative Party — an issue that helped unseat Edward Heath, Margaret Thatcher and John Major as prime ministers — but he has also been wary of stirring a fresh wave of anger among other European leaders, particularly Chancellor Angela Merkel of Germany, a center-right politician and onetime ally in European councils.

Her aides have described her as frustrated with Mr. Cameron’s maneuvering and, as she is said to see it, his bid to take advantage of other European states as they struggle to save the euro and keep the most debt-laden nations, like Greece, Portugal and Spain, from dropping out of the European Union.

Concern about the reactions in Berlin and Paris prompted a last-minute rescheduling of the Amsterdam speech. Germany and France had protested that the original date, next Monday, might overshadow long-planned celebrations that day of the 50th anniversary of the treaty between them, itself a landmark in the building of postwar Europe, that sealed their reconciliation after the wounds of World War II.

Along with this, commentators say, Mr. Cameron has been recalculating the ways in which the European issue can be managed to bolster the Conservatives’ sagging prospects in a general election expected in 2015, in which polls show them lagging as much as 13 percentage points behind the opposition Labour Party. He has also been contending with heavy lobbying by American officials, including President Obama.

The Americans, diplomats say, have told Mr. Cameron squarely in private what made headlines here last week when a senior State Department official, Philip Gordon, who is assistant secretary for European affairs, spoke on the issue with British reporters. Mr. Gordon said a continued “strong British voice” in an “outward-looking” European Union was in America’s interests, and warned specifically against the referendum on Europe that is an important component in Mr. Cameron’s plans. “Referendums,” Mr. Gordon said, “have often turned countries inward.”

For all his delaying, his aides say, Mr. Cameron is ready now to outline a strategy for renegotiating Britain’s status in the European Union in a way that would keep Britain free from the centralizing forces at work. Other major European states, France and Germany in particular, see a new federal Europe with enhanced powers of fiscal oversight as essential to the long-term survival of the tottering euro.

Alan Cowell contributed reporting from Paris, and Stephen Castle from London.

Article source: http://www.nytimes.com/2013/01/17/world/europe/cameron-to-outline-a-recast-european-role-for-britain.html?partner=rss&emc=rss

Filed Under: Economy News Tagged With: , ,

News Analysis: In Europe, Debate Slowly Shifts to Speed of a Recovery

December 30, 2012 by Leave a Comment

A year ago, many people seriously doubted whether the euro would still exist by now. On the threshold of 2013, the debate is more about how long it will take for the euro zone economy to recover and what must be changed to avoid future crises.

Europe still has plenty to worry about. Economic output is shrinking in 9 of the 17 members of the euro zone. European banks remain weak, and many have yet to confront their problems decisively.

Many businesses in Spain and Italy and other distressed countries cannot obtain credit, hampering a recovery.

What is more, with national elections coming up in Italy (February) and Germany (September), leaders there may be more focused on the narrow concerns of their voters, rather than the cause of European unity.

“At the moment the crisis seems to have calmed down somewhat,” Jens Weidmann, president of the Bundesbank, the German central bank, said in an interview with the Frankfurter Allgemeine newspaper published Sunday. “But the underlying causes have by no means been eliminated.”

But consider some of the doomsday scenarios that did not occur in 2012. Greece did not leave the euro zone or set off a Lehman-like financial Armageddon. Spanish and Italian bond yields, rather than succumbing to contagion from Greece, retreated from levels that had threatened their governments with bankruptcy. And nowhere did populist, anti-euro political parties gain the upper hand.

All of these things could still happen, of course. But the probability of catastrophe has fallen substantially because of a fundamental change in the way that European leaders are dealing with the crisis.

Under its president, Mario Draghi, the European Central Bank has promised to buy bonds of countries like Spain, if needed, to control their borrowing costs. That vow, which cooled the crisis fever of late summer, bought time for elected officials to begin creating the superstructure that the common currency needs to become more credible, including a permanent fund for rescuing stricken member countries and a unified system for overseeing banks.

“In 2012, the euro-area leaders finally got the diagnosis right,” said Jacob Funk Kirkegaard, a research fellow at the Peterson Institute for International Economics in Washington, “It wasn’t about Greek debt or Irish banks. It was about some very fundamental design flaws that needed to be fixed. That’s what markets were looking for.”

Even though European political leaders seem to argue endlessly, they have made enough progress to keep speculators at bay. Investors surveyed by UBS recently ranked the chances of a euro-zone breakup well behind the danger from the so-called fiscal cliff in the United States — the combination of spending cuts and tax increases scheduled to take effect next month — or a hard landing by the Chinese economy.

“There is more of a perception that nobody is better off if this thing breaks up,” said Richard Barwell, senior European economist at Royal Bank of Scotland.

As the year progresses, the question will be whether a fragile calm in Europe holds long enough for economic growth to resume, for banks to rebuild their balance sheets and for policy makers to make progress creating a more durable currency union.

Here are some of the main things to watch:

Economic performance The euro crisis, arguably, will be over the day that all of the stricken countries are generating economic growth. Ireland, one of the first countries to get into debt trouble back in 2008, might already have turned the corner. Its gross domestic product grew 0.2 percent in the third quarter from the level of a year earlier.

Spain, Italy and Portugal are still deep in recession, and Greece is in a de facto depression. But there are some signs of progress in one crucial measure: trade balances. All of the distressed countries have increased their exports this year and reduced their trade deficits. That is a sign their products have become more competitive on world markets.

Article source: http://www.nytimes.com/2012/12/31/business/global/in-europe-debate-slowly-shifts-to-speed-of-a-recovery.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

European Parliament Adopts Uniform Patent System

December 11, 2012 by Leave a Comment

BRUSSELS — It only took four decades of wrangling.

On Tuesday, the European Parliament adopted a uniform patent system for Europe. If the plan goes into effect as expected by early 2014, it would try to remedy the country-by-country approach whose time and costs have long been an impediment to innovation across the European Union.

Achieving the new unified system could conceivably provide encouragement for another, far more ambitious project that European leaders will be grappling with at their summit meeting this week: a uniform system of banking regulation and supervision for the euro area. But the long, tortuous route to the patent agreement might also serve as a cautionary tale.

The banking union has already bogged down in national battles that some experts warn could drag out the process for years — particularly if changes to the bloc’s treaties are needed to give the central bank new and wide-ranging supervisory powers, or to set up a joint financial backstop to ensure the orderly winding down of failing banks.

“What’s clear is that the E.U. continues to operate on a hopelessly optimistic time scale,” Mats Persson, the director of the research group Open Europe, wrote in a briefing note on Tuesday. Mr. Persson was referring to the time it would take to set up a “proper safety net” for Europe’s banks, including a bank resolution fund.

In the case of the patent system, decades of discussions resulted in an unsatisfactory compromise, according to Bruno van Pottelsberghe, the dean of the Solvay Brussels School of Economics and Management. The new system will “still be a mess” and “we should not expect any of a change in Europe’s innovative performance,” Mr. van Pottelsberghe said.

Meeting in Strasbourg on Tuesday, the European Parliament voted 484 to 164 to pass the key plank of the new patent system. Nation-by-nation vetting of the new system will formally start in February, when governments are expected to sign a treaty creating special patent courts.

The system would supplement the current patchwork of patent rules in the European Union; under the current system, a ruling in one of the union’s 27 countries has no automatic bearing on another. The patchwork approach has made protecting inventions and innovations in Europe 15 times more expensive than in the United States, harming competitiveness, according to the European Commission, the executive arm of the European Union.

The cost of patent protection should initially drop to around 6,500 euros, or $8,400, from about 36,000 euros, or $46,500, the commission said. That change is largely because the new so-called unitary patents granted by the European Patent Office in Munich would no longer need to be validated in all of the countries where protection is sought. Nor would they need to be translated into all local languages. Instead, English, German or French would suffice.

Benoît Battistelli, the president of the European Patent Office, said the decision on Tuesday would “equip the European economy with a truly supranational patent system.”

Yet the long, tangled history of working toward a common patent — repeatedly shelved after bumping up against national interests and with squabbling over languages — is a timely reminder of how much easier it is to make commitments to a unified Europe than to put unity into practice.

In the case of the banking rules, also known as banking union, European governments still must overcome differences over the system’s most fundamental element: a single banking supervisor operating under the aegis of the European Central Bank.

European finance ministers are expected to work through the night on Wednesday in Brussels debating whether a new supervisor would oversee all 6,000 lenders in the euro area. France, Germany, Sweden, Hungary and Britain are among countries with concerns about the plan. The timing for an agreement “is likely to slip, as member states remain far apart on a number of key substantive issues,” Mujtaba Rahman, an analyst for the Eurasia Group, wrote in a briefing note on Tuesday.

Article source: http://www.nytimes.com/2012/12/12/business/global/eu-reaches-agreement-on-system-for-patents.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,
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